Henry Kissinger is the most famous and most divisive secretary of state the US has ever had. In an interview, he discusses his new book exploring the crises of our time, from Syria to Ukraine, and the limits of American power. He says he acted in accordance with his convictions in Vietnam.

Henry Kissinger seems more youthful than his 91 years. He is focused and affable, but also guarded, ready at any time to defend himself or brusquely deflect overly critical questions. That, of course, should come as no surprise. While his intellect is widely respected, his political legacy is controversial. Over the years, repeated attempts have been made to try him for war crimes.From 1969 to 1977, Kissinger served under President Richard Nixon and Gerald Ford, first as national security advisor and then as secretary of state. In those roles, he also carried partial responsibility for the napalm bombings in Vietnam, Cambodia and Laos the killed or maimed tens of thousands of civilians. Kissinger also backed the putsch against Salvador Allende in Chile and is accused of having had knowledge of CIA murder plots. Documents declassified just a few weeks ago show that Kissinger had drawn up secret plans to launch air strikes against Cuba. The idea got scrapped after Democrat Jimmy Carter was elected in 1976.Nevertheless, Kissinger remains a man whose presence is often welcome in the White House, where he continues to advise presidents and secretaries of state to this day. Little in Kissinger's early years hinted at his future meteoric rise in American politics. Born as Heinz Alfred Kissinger in Fürth, Germany in 1923, his Jewish family would later flee to the United States in 1938. After World War II, Kissinger went to Germany to assist in finding former members of the Gestapo. He later studied political science and became a professor at Harvard at the age of 40. Kissinger recently published his 17th book, a work with the not exactly modest title "World Order." When preparing to sit down with us for an interview, he asked that "world order" be the topic. Despite his German roots and the fact that he reads DER SPIEGEL each week on his iPad, Kissinger prefers to speak in English. After 90 minutes together in New York, Kissinger says he's risked his neck with everything he's told us. But of course, a man like Kissinger knows precisely what he does and doesn't want to say.SPIEGEL: Dr. Kissinger, when we look at the world today, it seems to be messier than ever -- with wars, catastrophes and chaos everywhere. Is the world really in greater disorder than ever before? Kissinger: It seems that it is. There is chaos threatening us, through the spread of weapons of mass destruction and cross-border terrorism. There is now a phenomenon of ungoverned territories, and we have seen in Libya, for example, that an ungoverned territory can have an enormous impact on disorder in the world. The state as a unit is under attack, not in every part of the world, but in many parts of it. But at the same time, and this seems to be a paradox, this is the first time one can talk about a world order at all. SPIEGEL: What do you mean by that?Kissinger: For the greatest part of history until really the very recent time, world order was regional order. This is the first time that different parts of the world can interact with every part of the world. This makes a new order for the globalized world necessary. But there are no universally accepted rules. There is the Chinese view, the Islamic view, the Western view and, to some extent, the Russian view. And they really are not always compatible.SPIEGEL: In your new book, you frequently point to the Westphalian Peace Treaty of 1648 as a reference system for world order, as a result of the Thirty Years' War. Why should a treaty dating back more than 350 years still be relevant today? Kissinger: The Westphalian Peace was made after almost a quarter of the Central European population perished because of wars, disease and hunger. The treaty was based on the necessity to come to an arrangement with each other, not on some sort of superior morality. Independent nations decided not to interfere in the affairs of other states. They created a balance of power which we are missing today. SPIEGEL: Do we need another Thirty Years' War to create a new world order?Kissinger: Well, that's a very good question. Do we achieve a world order through chaos or through insight? One would think that the proliferation of nuclear weapons, the dangers of climate change and terrorism should create enough of a common agenda. So I would hope that we can be wise enough not to have a Thirty Years' War. SPIEGEL: So let's talk about a concrete example: How should the West react to the Russian annexation of Crimea? Do you fear this might mean that borders in the future are no longer incontrovertible?Kissinger: Crimea is a symptom, not a cause. Furthermore, Crimea is a special case. Ukraine was part of Russia for a long time. You can't accept the principle that any country can just change the borders and take a province of another country. But if the West is honest with itself, it has to admit that there were mistakes on its side. The annexation of Crimea was not a move toward global conquest. It was not Hitler moving into Czechoslovakia. SPIEGEL: What was it then?Kissinger: One has to ask one's self this question: Putin spent tens of billions of dollars on the Winter Olympics in Sochi. The theme of the Olympics was that Russia is a progressive state tied to the West through its culture and, therefore, it presumably wants to be part of it. So it doesn't make any sense that a week after the close of the Olympics, Putin would take Crimea and start a war over Ukraine. So one has to ask one's self why did it happen? SPIEGEL: What you're saying is that the West has at least a kind of responsibility for the escalation?Kissinger: Yes, I am saying that. Europe and America did not understand the impact of these events, starting with the negotiations about Ukraine's economic relations with the European Union and culminating in the demonstrations in Kiev. All these, and their impact, should have been the subject of a dialogue with Russia. This does not mean the Russian response was appropriate.SPIEGEL: It seems you have a lot of understanding for Putin. But isn't he doing exactly what you are warning of -- creating chaos in eastern Ukraine and threatening sovereignty?Kissinger: Certainly. But Ukraine has always had a special significance for Russia. It was a mistake not to realize that.SPIEGEL: Relations between the West and Russia are tenser now than they have been in decades. Should we be concerned about the prospects of a new Cold War? Kissinger: There clearly is this danger, and we must not ignore it. I think a resumption of the Cold War would be a historic tragedy. If a conflict is avoidable, on a basis reflecting morality and security, one should try to avoid it.SPIEGEL: But didn't the annexation of Crimea by Russia force the EU and US to react by imposing sanctions? Kissinger: One, the West could not accept the annexation; some countermeasures were necessary. But nobody in the West has offered a concrete program to restore Crimea. Nobody is willing to fight over eastern Ukraine. That's a fact of life. So one could say we don't have to accept it, and we do not treat Crimea as a Russian territory under international law -- just as we continued to treat the Baltic states as independent throughout Soviet rule.SPIEGEL: Would it be better to stop sanctions even without any concessions from the Russians?Kissinger: No. But I do have a number of problems with the sanctions. When we talk about a global economy and then use sanctions within the global economy, then the temptation will be that big countries thinking of their future will try to protect themselves against potential dangers, and as they do, they will create a mercantilist global economy. And I have a particular problem with this idea of personal sanctions. And I'll tell you why. We publish a list of people who are sanctioned. So then, when the time comes to lift the sanctions, what are we going to say? "The following four people are now free of sanctions, and the other four are not." Why those four? I think one should always, when one starts something, think what one wants to achieve and how it should end. How does it end?SPIEGEL: Doesn't that also apply to Putin, who has maneuvered himself into a corner? Does he act out of weakness or out of strength?Kissinger: I think out of strategic weakness masked as tactical strength.SPIEGEL: What does that mean for any interaction with him? Kissinger: We have to remember that Russia is an important part of the international system, and therefore useful in solving all sorts of other crises, for example in the agreement on nuclear proliferation with Iran or over Syria. This has to have preference over a tactical escalation in a specific case. On the one hand it is important that Ukraine remain an independent state, and it should have the right to economic and commercial associations of its choice. But I don't think it's a law of nature that every state must have the right to be an ally in the frame work of NATO. You and I know that NATO will never vote unanimously for the entry of Ukraine.SPIEGEL: But we cannot tell the Ukrainians that they are not free to decide their own future. Kissinger: Why not?

'The War Against IS Has Wide Public Support'

SPIEGEL: You're speaking like a superpower that is used to getting its way. Kissinger: No, the United States cannot dictate, and the US should not try to dictate. It would be a mistake even to think it could. But in regards to NATO, the US will have one vote in a decision based on unanimity. The German chancellor has expressed herself in the same sense.SPIEGEL: America is very polarized. The level of aggression in the political debate is extremely high. Is the superpower still even able to act at all?Kissinger: I am worried about this domestic split. When I worked in Washington, political combat was tough. But there was much more cooperation and contact between opponents of the two big parties.SPIEGEL: In last week's elections, President Obama lost his majority in the Senate as well.Kissinger: Technically correct. At the same time, the president is freed to stand for what is right -- just as President Harry Truman did between 1946 and 1948, when he advanced the Marshall Plan after losing Congress. SPIEGEL: The next presidential race will soon begin. Would Hillary Clinton make a good candidate?Kissinger: I consider Hillary a friend, and I think she's a strong person. So, yes, I think she can do the job. Generally, I think it would be better for the country if there were a change in administration. And I think we Republicans have to get a good candidate.SPIEGEL: In your book, you write that international order "must be cultivated, not imposed." What do you mean by that?Kissinger: What it means is we that we Americans will be a major factor by virtue of our strengths and values. You become a superpower by being strong but also by being wise and by being farsighted. But no state is strong or wise enough to create a world order alone.SPIEGEL: Is American foreign policy wise and determined at the moment?Kissinger: We have the belief in America that we can change the world by not just soft power, but by actual military power. Europe doesn't have that belief. SPIEGEL: The American public is very reluctant to be engaged and would like to focus on domestic affairs. Obama himself talks about "nation building at home."Kissinger: If you look at the five wars America has fought since World War II, they all had large public support. The present war against the terror organization Islamic State has large public support. The question is what happens as the war continues. Clarity about the outcome of the war is essential.SPIEGEL: Shouldn't the most important objective be the protection of suffering civilians in Iraq and Syria.Kissinger: First of all, I don't agree that the Syrian crisis can be interpreted as a ruthless dictator against a helpless population and that the population will become democratic if you remove the dictator. SPIEGEL: But the civilians are suffering, however you define it.Kissinger: Yes, they are, and they deserve sympathy and humanitarian assistance. Let me just say what I think is happening. It is partly a multiethnic conflict. It is partly a rebellion against the old structure of the Middle East. And it is partly a sort of rebellion against the government. Now, if one is willing to fix all these problems and if one is willing to pay the sacrifices for fixing all these problems and if one thinks one can create something that will bring this about, then one can say, "We will apply the right to interfere," but that means military measures and willingness to face the consequences. Look at Libya. There's no question that it was morally justified to overthrow Muammar Gadhafi, but we were not willing to fill the vacuum afterwards. Therefore we have militias fighting against each other today. You get an ungoverned territory and an arms depot for Africa. SPIEGEL: But we are seeing a similarly unbearable situation in Syria. The state is falling apart and terror organizations are ruling large parts of the country. Wasn't it perhaps wrong not to intervene in order to avoid chaos that now represents a threat to us as well?Kissinger: In my life, I have almost always been on the side of active foreign policy. But you need to know with whom you are cooperating. You need reliable partners -- and I don't see any in this conflict.SPIEGEL: As in the Vietnam War. Do you sometimes regret your aggressive policy there?Kissinger: You'd love me to say that.SPIEGEL: Of course. You haven't spoken much about it all your life.Kissinger: I've spent all my life studying these things, and written a book about Vietnam called "Ending the Vietnam War" and many chapters in my memoirs on Vietnam. You have to remember that the administration in which I served inherited the war in Vietnam. Five hundred thousand Americans were deployed there by the Johnson Administration. The Nixon Administration withdrew these troops gradually, with ground combat troops being withdrawn in 1971. I can only say that I and my colleagues acted on the basis of careful thought. On the strategic directions, that was my best thinking, and I acted to the best of my convictions. SPIEGEL: There is a sentence in your book, on the last page, that can be understood as a kind of self-criticism. You write that you once thought you could explain history, but that today you are more modest when it comes to judging historical events. Kissinger: I have learned, as I wrote, that history must be discovered, not declared. It's an admission that one grows in life. It's not necessarily a self-criticism. What I was trying to say is you should not think that you can shape history only by your will. This is also why I'm against the concept of intervention when you don't know its ultimate implications. SPIEGEL: In 2003, you were in favor of overthrowing Saddam Hussein. At that time, too, the consequences of that intervention were uncertain. Kissinger: I'll tell you what I thought at the time. I thought that after the attack on the United States, it was important that the US vindicate its position. The UN had certified major violations. So I thought that overthrowing Saddam was a legitimate objective. I thought it was unrealistic to attempt to bring about democracy by military occupation. SPIEGEL: Why are you so sure that it is unrealistic?Kissinger: Unless you are willing to do it for decades and you are certain your people will follow you. But it is probably beyond the resources of any one country. SPIEGEL: For this reason, President Obama is fighting the war against terror from the air using drones and warplanes in Pakistan and Yemen and now in Syria and Iraq as well. What do you think about that?Kissinger: I support attacks on territories from which terrorist attacks are launched. I have never expressed a public view on drones. It threatens more civilians than the equivalent one did in the Vietnam War, but it's the same principle.SPIEGEL: In your book you argue that America has to make its decisions about war on the basis of what achieves the "best combination of security and morality." Can you explain what you mean by that? Kissinger: No. It depends on the situation. What is our precise interest in Syria? Is it humanitarian alone? Is it strategic? Of course, you would always want to achieve the most moral possible outcome, but in the middle of a civil war you cannot avoid looking at the realities, and then you have to make the judgments.SPIEGEL: Meaning that for a certain amount of time, for realistic reasons, we could be on the side of Bashar Assad fighting Islamic State?Kissinger: Well, no. We could never fight with Assad. That would be a denial of years of what we have done and asserted. But frankly, I think we should have had a dialogue with Russia and asked what outcome we want in Syria, and formulate a strategy together. It was wrong to say from the beginning that Assad must go -- although it is a desirable ultimate goal. Now that we are locked into that conflict with Russia, a deal regarding the Iranian nuclear program becomes more difficult.SPIEGEL: Are you in favor of a more assertive role for Europe, especially for Germany?Kissinger: Yes, certainly. A century ago, Europe almost had a monopoly in creating world order. Today, there is a danger it is just busy with itself. Today, Germany is the most significant European country and, yes, it should be much more active. I do have very high regard of Ms. Merkel, and I think she is the right person for leading Germany into this role. By the way, I've met and been sort of friendly with every German chancellor.SPIEGEL: Oh, including Willy Brandt? Kissinger: I have very high regard for Willy Brandt.SPIEGEL: We're a bit surprised here because a few months ago, a conversation between you and Nixon was released in which you call Brandt a "dangerous idiot".Kissinger: You know, these phrases out of context confuse the reality. Here are people at the end of an exhausting day saying things to each other, reflecting the mood of a moment, and it probably was during some difference of opinion which I don't even remember. We had some doubts about Brandt's Ostpolitik at the beginning, but later, we worked very closely with him. Ask Egon Bahr, he will tell you: Without the Nixon Administration, Brandt's Ostpolitik would not have achieved its objective, especially on the issue of Berlin.SPIEGEL: In Germany, you are a very controversial politician. When the University of Bonn wanted to name a chair after you, the students protested. Were you disappointed, or at least irritated?Kissinger: I appreciate the honor. I didn't ask for the chair, and I only became aware of the chair after it was established. I don't want to be part of the discussion, it's entirely up to German agencies. I think Germany should do it for itself or not do it for its own reasons.SPIEGEL: Mr. Kissinger, we thank you for this interview.

This week’s summit in Beijing helped, but great-power rivalry still threatens the Pacific

Nov 15th 2014.

IN CHINA even a handshake is an expression of power. When Xi Jinping met Barack Obama in Beijing this week at the Asia-Pacific Economic Co-operation (APEC) summit, Mr Xi stood on the right, his body open towards the cameras in an attitude of confident strength. The visitor was required to approach him, as if paying tribute, from the left, shoulder defensively towards the photographers. These days, from the smallest details of summit choreography to the biggest global issues, the rivalry between China and America trumps everything.On the face if it, diplomacy triumphed this week. There was an even more momentous handshake—the long-awaited, reluctant one between Mr Xi and Shinzo Abe, the Japanese prime minister, which signalled a lowering of tensions over disputed islands. Mr Xi and the president of the Philippines, Benigno Aquino, had a “meeting of minds” over a separate maritime matter. China and South Korea agreed a trade deal of their own. And America and China made real progress on climate change, visas, trade and security. Compared with the torpor and occasional ill-temper of previous APEC summits, this was visionary stuff , and the summitry is now moving on to Myanmar and Australia. The trouble is that all this is only a first step in diffusing the tensions in the Pacific created by the rise of China and America’s relative decline.

I’m sailing right behind—in a gunboat

Ever since the second world war, America’s naval might has guaranteed Asia’s security. Richard Nixon’s visit to Beijing in 1972 was celebrated because it aligned America and China against Soviet Russia. But it also signalled China’s willingness to help America end the Vietnam war, and thus to tolerate an Asian pax Americana. Those days are now at an end.China’s economy will soon overtake America’s to become the world’s largest. China is once again in league with Russia—on November 9th the two signed another huge gas deal. In a head-on war China’s armed forces would be no match for America’s. But their growing strength will increasingly keep America at arm’s length, prevent it from protecting Taiwan and pose a threat to its bases in South Korea and Japan. Mr Xi could not have been clearer when he declared, earlier this year, “It is for the people of Asia to…uphold the security of Asia.”China’s growth is not the only reason for change. As our special report in this issue sets out, the Pacific rim as a whole has become too prosperous and too complex for the ocean to be either America’s lake or China’s. The Asian middle class has increased sevenfold since 2000. In Latin America, by contrast, it has merely doubled. Asian countries, including South Korea, have become influential actors in world trade. America is their chief ally and China their largest trading partner.

They do not want to be satellites of either.

Unfortunately, pax Americana is giving way to a balance of power that is seething with rivalry and insecurity. Everywhere China sees American plots designed to prevent its rise. American alliances contain it, foreign-funded NGOs undermine the Communist Party, and spies foment protests in Hong Kong and among the Uighurs in Xinjiang. In August a Chinese fighter-jet and an American surveillance plane passed within 20 feet, just avoiding a mid-air collision. Perhaps because Mr Xi and Mr Obama understand that this could have plunged the two superpowers into crisis they pledged this week to improve military communications. Smaller countries, for their part, are alarmed by Chinese bullying—especially over disputed claims to rocks, shoals, reefs and sandbanks around China’s coastline. Chinese high-handedness drove Myanmar towards the West and provoked anti-China riots in Vietnam this year. Asia is arming itself. In the five years to 2013 it accounted for 47% of global weapons imports, up from 40% in 2004-08.America, naturally, wants to maintain the status quo. Mr Obama, who grew up in Hawaii, stressed this week that his is a “thoroughly Pacific nation”. But American diplomacy is at best distracted and at worst divisive. Rhetoric about “pivoting” and “rebalancing” towards Asia was meant to reassure America’s allies; instead it fed Chinese paranoia. China appreciates Western-inspired rules in commerce. But America’s ambivalence over whether China will one day be welcome to join its grand trade deal, the Trans-Pacific Partnership (TPP), has allowed even that to become a source of tension. As China grows, it deserves a bigger role in international institutions, yet Congress has blocked reforms to give China more clout in the IMF.All this has encouraged China to set up its own clubs—its own trade deal, its own development bank and its own regional-security grouping. The bank may be useful, but this approach will not serve China well. Global institutions such as the world trading and financial systems, freedom of navigation and international action on climate change are vital for the country’s prosperity. China weakens them at its peril.

All your dreams are on their way

Rather than entrench rivalries by creating two parallel systems, the Pacific powers should focus on adapting today’s institutions. Trade could become the exemplar. TPP should be a symbol of America’s commitment to the Pacific; with more effort, Mr Obama could sell it to both a pro-business Republican Congress and a foot-dragging Japan. By making vigorous efforts to get China to join, America could signal that it wants to build an inclusive world order. More than that, TPP could show the nationalists in Beijing that a rules-based international system will benefit China more than great-power jockeying. Asia needs such institutions in almost every sphere.Nineteenth-century Europe discovered how difficult it is to use the balance of power to keep the peace. For decades it laboured to absorb the rise of Wilhelmine Germany and Imperial Russia, and the decline of Austria-Hungary, before succumbing to war in 1914 in a fit of nationalistic fervour. A lot of blood had to be spilled before the Atlantic countries understood that institutions—NATO, the UN and even the unloved European Union—are needed to shore up international relations. Let us hope that the Pacific, cradle of so many of the world’s hopes, can reach that understanding by peaceful means.

Gold has seen its role as a form of money reduced significantly over time.
The U.S. cut off its last link to the gold standard in 1971 under Nixon. There are no longer any significant currencies in this world that are fully or even partially backed by gold. Yet it is a curious thing that central banks hold gold. Some central banks still buy gold for reserves. In 2011, then-Congressman Ron Paul asked then-Fed Chair Ben Bernanke why central banks hold gold (as opposed to diamonds). Bernanke’s response was that it is tradition. There could be worse answers... but why is it tradition for central banks to hold gold? The reason is that it was widely used as a form of money, as determined by the marketplace, for thousands of years. Central banks still hold gold because of its history as money. Even though there are no currencies backed by gold, gold reserves act as a backstop. It keeps an element of confidence in the fiat currency that is issued.

Gold to $16,000

Throughout history, there’s only been one way to effectively and accurately predict gold bull runs... It’s a pattern that goes back nearly 200 years... a pattern that makes millionaires every 40 years... It’s a pattern I call the XL Gold Cycle... and it’s about to take gold all the way up to $16,000/oz.Based on the most recent data, here is a list of the top 10 countries with the largest gold holdings:

United States: 8,133.5 tonnes

Germany: 3,384.2 tonnes

Italy: 2,451.8 tonnes

France: 2,435.4 tonnes

Russia: 1,149.8 tonnes

China: 1,054.1 tonnes

Switzerland: 1,040.0 tonnes

Japan: 765.2 tonnes

Netherlands: 612.5 tonnes

India: 557.7 tonnes

The U.S. obviously holds the most gold by far. Of course, this is based on the official reporting numbers, and we can’t be certain of the true story.

German officials attempted to repatriate some of their country's gold from the U.S. but then suddenly stopped pursuing it. We don’t really know if the gold is there because there are no true audits done on the gold holdings. For all we know, it is possible most of the gold has been leased out.

We must also consider that the U.S. is the wealthiest country — although in terms of population and economic size, Switzerland’s holdings of over 1,000 tonnes is impressive.

The Swiss are set to vote on a gold referendum at the end of the month. While its chances of passing and actually being implemented are remote at this time, we can see that gold still plays a significant role in Switzerland.

The Peak of Central Bank Dumping

The end of the 20th century really marked the peak of the anti-gold movement. In 2000, the Swiss franc ended its last link to gold and became the last official fiat currency backed by nothing. This resulted in heavy gold sales from the central bank.

From 1999 to 2002, the U.K. sold about half of its gold reserves. This decision is credited to Gordon Brown, who was then the Chancellor of the Exchequer. His major blunder did not prevent him from later becoming the Prime Minister.

The turn of the century was the peak of bearishness for gold. It was also a great buying opportunity for gold investors, as the metal sat below the $300 per ounce mark.

For anyone who bought and held gold at these levels, I suppose you should send a thank you note to Gordon Brown for the buying opportunity of a lifetime.

With that said, things have shifted in the other direction more recently. Some central banks are actually buying gold again. Even supposedly communist and formerly communist countries are getting in on the gold action.

Just as gold acts as insurance for individuals, it also serves as a form of insurance for central bankers.

China

While China’s official gold holdings show 1,054.1 tonnes in reserve, some analysts believe the number is much higher — perhaps 2,000 to 3,000 tonnes.

Chinese officials show signs that they want a more respected currency that can compete with the U.S. dollar. Unfortunately, they can’t quite shake off their Keynesian/mercantilist tendencies, as they continue to inflate.

In addition, the yuan is not a freely floating currency, which means it will never be in high demand outside of China until this changes.

Still, the People’s Bank of China is believed to be purchasing gold and is expected to continue. It is more a question of how much.

Alan Greenspan recently noted that if China were to convert a modest portion of its $4 trillion in foreign exchange reserves into gold, then its currency could become unexpectedly strong. Greenspan abandoned his early views on gold and the free market with his actions as Fed Chair, but he still provides some interesting thoughts every now and then.

China has well over $1 trillion in U.S. government debt alone. It could sell about a quarter of its U.S. debt and would be able to afford to buy the equivalent of all of the official U.S. gold holdings of over 8,000 tonnes at today’s Price.

RussiaRussia’s central bank has also been buying gold. Reports show it has accumulated about 115 tonnes in this year alone. This is up from 77.5 tonnes in 2013 and 75 tonnes in 2012.

Since U.S. sanctions were placed against Russia over the Ukraine situation, many Western banks are refusing to do business with Russian companies, even if it is not expressly prohibited. Since Russia has a large amount of gold production, the central bank has been buying up some of this production.

It should not surprise us if Russia continues to accumulate gold for reserves, particularly if the sanctions continue. It is a way to possibly weaken the dollar in the future, and it is also a possible way around some sanctions.

While gold is not used as a form of money in day-to-day trading between individuals, it can still be a form of money internationally. It should not surprise us if one day we hear that Russia and China are trading oil or some other commodity for gold. Something similar between Russia and India would not be out of the question, either.

A Ground Floor for Gold

Since gold is becoming popular to hold again for many central banks, it actually serves as support for the gold price.

While the dollar price of gold has been down lately, particularly due to a stronger dollar, the low prices may not last long if central banks continue buying.

The Chinese and Russian central banks are the biggest potential buyers of gold, but there is also India. And we can’t forget about Switzerland, although the upcoming gold referendum will be telling.

I recommend holding a permanent portfolio, which includes 25% in gold and gold-related investments. If you have been waiting to buy gold at a bargain price, you may not want to wait any longer.

There is certainly potential for the price to go lower in the short term, but the longer term looks promising. With a combination of monetary inflation and central banks buying gold again, it is bullish for gold investors who are willing to ride out this temporary rough patch.

Some investors were wise enough to see an opportunity 14 years ago when gold was $300 per ounce or less. Will we look back one day and talk about the opportunity investors had at the end of 2014 when gold was less than $1,200 per ounce?

China's silky road to glory.By Pepe Escobar .Nov 14, '14 If there were any remaining doubts about the unlimited stupidity Western corporate media is capable of dishing out, the highlight of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing has been defined as Russian President Vladimir Putin supposedly "hitting" on Chinese President Xi Jinping's wife - and the subsequent Chinese censoring of the moment when Putin draped a shawl over her shoulders in the cold air where the leaders were assembled. What next? Putin and Xi denounced as a gay couple?

Let's dump the clowns and get down to the serious business. Right at the start, President Xi urged APEC to "add firewood to

If there were any remaining doubts about the unlimited stupidity Western corporate media is capable of dishing out, the highlight of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing has been defined as Russian President Vladimir Putin supposedly "hitting" on Chinese President Xi Jinping's wife - and the subsequent Chinese censoring of the moment when Putin draped a shawl over her shoulders in the cold air where the leaders were assembled. What next? Putin and Xi denounced as a gay couple?

Let's dump the clowns and get down to the serious business. Right at the start, President Xi urged APEC to "add firewood to the fire of the Asia-Pacific and world economy". Two days later, China got what it wanted on all fronts.

1) Beijing had all 21 APEC member-nations endorsing the Free Trade Area of the Asia-Pacific (FTAAP) - the Chinese vision of an "all inclusive, all-win" trade deal capable of advancing Asia-Pacific cooperation - see South China Morning Post (paywall). The loser was the US-driven, corporate-redacted, fiercely opposed (especially by Japan and Malaysia) 12-nation Trans-Pacific Partnership (TPP). [See also here.

2) Beijing advanced its blueprint for "all-round connectivity" (in Xi's words) across Asia-Pacific - which implies a multi-pronged strategy. One of its key features is the implementation of the Beijing-based US$50 billion Asian Infrastructure Investment Bank. That's China's response to Washington refusing to give it a more representative voice at the International Monetary Fund than the current, paltry 3.8% of votes (a smaller percentage than the 4.5% held by stagnated France).

3) Beijing and Moscow committed to a second gas mega-deal - this one through the Altai pipeline in Western Siberia - after the initial "Power of Siberia" mega-deal clinched last May.

4) Beijing announced the funneling of no less than US$40 billion to start building the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

Predictably, once again, this vertiginous flurry of deals and investment had to converge towards the most spectacular, ambitious, wide-ranging plurinational infrastructure offensive ever attempted: the multiple New Silk Roads - that complex network of high-speed rail, pipelines, ports, fiber optic cables and state of the art telecom that China is already building across the Central Asian stans, linked to Russia, Iran, Turkey and the Indian Ocean, and branching out to Europe all the way to Venice, Rotterdam, Duisburg and Berlin.

Now imagine the paralyzed terror of the Washington/Wall Street elites as they stare at Beijing interlinking Xi's "Asia-Pacific Dream" way beyond East Asia towards all-out, pan-Eurasia trade - with the center being, what else, the Middle Kingdom; a near future Eurasia as a massive Chinese Silk Belt with, in selected latitudes, a sort of development condominium with Russia.

Vlad doesn't do stupid stuff

As for "Don Juan" Putin, everything one needs to know about Asia-Pacific as a Russian strategic/economic priority was distilled in his intervention at the APEC CEO summit.

This was in fact an economic update of his by now notorious speech at the Valdai Club meeting in Sochi in October, followed by a wide-ranging Q&A, which was also duly ignored by Western corporate media (or spun as yet more "aggression").

The Kremlin has conclusively established that Washington/Wall Street elites have absolutely no intention of allowing a minimum of multipolarity in international relations. What's left is chaos.

There's no question that Moscow pivoting away from the West and towards East Asia is a process directly influenced by President Barack Obama's self-described "Don't Do Stupid Stuff" foreign policy doctrine, a formula he came up with aboard Air Force One when coming back last April from a trip to - where else - Asia.

But the Russia-China symbiosis/strategic partnership is developing in multiple levels.

On energy, Russia is turning east because that's where top demand is. On finance, Moscow ended the pegging of the rouble to the US dollar and euro; not surprisingly the US dollar instantly - if only briefly - dropped against the rouble. Russian bank VTB announced it may leave the London Stock Exchange for Shanghai's - which is about to become directly linked to Hong Kong. And Hong Kong, for its part, is already attracting Russian energy giants.

Now mix all these key developments with the massive yuan-rouble energy double deal, and the picture is clear; Russia is actively protecting itself from speculative/politically motivated Western attacks against its currency.

The Russia-China symbiosis/strategic partnership visibly expands on energy, finance and, also inevitably, on the military technology front. That includes, crucially, Moscow selling Beijing the S-400 air defense system and, in the future, the S-500 - against which the Americans are sitting ducks; and this while Beijing develops surface-to-ship missiles that can take out everything the US Navy can muster.

Anyway, at APEC, Xi and Obama at least agreed to establish a mutual reporting mechanism on major military operations. That might - and the operative word is "might" - prevent an East Asia replica of relentless NATO-style whining of the "Russia has invaded Ukraine!" kind.

Freak out, neo-cons

When Little Dubya Bush came to power in early 2001, the neo-cons were faced with a stark fact: it was just a matter of time before the US would irreversibly lose its global geopolitical and economic hegemony. So there were only two choices; either manage the decline, or bet the whole farm to consolidate global hegemony using - what else - war.

We all know about the wishful thinking enveloping the "low-cost" war on Iraq - from Paul Wolfowitz's "We are the new OPEC" to the fantasy of Washington being able to decisively intimidate all potential challengers, the EU, Russia and China.

And we all know how it went spectacularly wrong. Even as that trillionaire adventure, as Minqi Li analyzed in The Rise of China and the Demise of the Capitalist World Economy, "has squandered US imperialism's remaining space for strategic maneuver", the humanitarian imperialists of the Obama administration still have not given up, refusing to admit the US has lost any ability to provide any meaningful solution to the current, as Immanuel Wallerstein would define it, world-system.

There are sporadic signs of intelligent geopolitical life in US academia, such as this at the Wilson Center website (although Russia and China are not a "challenge" to a supposed world "order": their partnership is actually geared to create some order among the chaos.)

And yet this opinion piece at USNews is the kind of stuff passing for academic "analysis" in US media.

On top of it, Washington/Wall Street elites - through their myopic Think Tankland - still cling to mythical platitudes such as the "historical" US role as arbiter of modern Asia and key balancer of power.

So no wonder public opinion in the US - and Western Europe - cannot even imagine the earth-shattering impact the New Silk Roads will have in the geopolitics of the young 21st century.

Washington/Wall Street elites - talk about Cold War hubris - always took for granted that Beijing and Moscow would be totally apart. Now puzzlement prevails. Note how the Obama administration's "pivoting to Asia" has been completely erased from the narrative - after Beijing identified it for what it is: a warlike provocation. The new meme is "rebalance".

German businesses, for their part, are absolutely going bonkers with Xi's New Silk Roads uniting Beijing to Berlin - crucially via Moscow. German politicians sooner rather than later will have to get the message.

All this will be discussed behind closed doors this weekend at key meetings on the sidelines of the Group of 20 in Australia. The Russia-China-Germany alliance-in-the-making will be there. The BRICS, crisis or no crisis, will be there. All the players in the G-20 actively working for a multipolar world will be there.

APEC once again has shown that the more geopolitics change, the more it won't stay the same; as the exceptional dogs of war, inequality and divide and rule keep barking, the China-Russia pan-Eurasian caravan will keep going, going, going - further on down the (multipolar) road.

Two years ago, my friend Mohamed El-Erian and I were on the stage at my Strategic Investment Conference. Naturally we were discussing currencies in the global economy, and I asked him about currency wars. He smiled and said to me, “John, we don’t talk about currency wars in polite circles. More like currency disagreements” (or some word to that effect).This week I note that he actually uses the words currency war in an essay he wrote for Project Syndicate:Yet the benefits of the dollar’s rally are far from guaranteed, for both economic and financial reasons. While the US economy is more resilient and agile than its developed counterparts, it is not yet robust enough to be able to adjust smoothly to a significant shift in external demand to other countries. There is also the risk that, given the role of the ECB and the Bank of Japan in shaping their currencies’ performance, such a shift could be characterized as a “currency war” in the US Congress, prompting a retaliatory policy response.This is a short treatise, but as usual with Mohamed’s writing, it’s very thought-provoking. Definitely Outside the Box material.And for a two-part Outside the Box I want to take the unusual step of including an op-ed piece that you might not have seen, from the Wall Street Journal, called “How to Distort Income Inequality,” by Phil Gramm and Michael Solon. They cite research I’ve seen elsewhere which shows that the work by Thomas Piketty cherry-picks data and ignores total income and especially how taxes distort the data. That is not to say that income inequality does not exist and that we should not be cognizant and concerned, but we need to plan policy based on a firm grasp of reality and not overreact because of some fantasy world created by social provocateur academicians.The calls for income redistribution from socialists and liberals based on Piketty’s work are clearly misguided and will further distort income inequality in ways that will only reduce total global productivity and growth.I’m in New York today at an institutional fund manager conference where I had the privilege of hearing my good friend Ian Bremmer take us around the world on a geopolitical tour. Ian was refreshingly optimistic, or at least sanguine, about most of the world over the next few years. Lots of potential problems, of course, but he thinks everything should turn out fine – with the notable exception of Russia, where he is quite pessimistic. A shirtless Vladimir Putin was the scariest thing on his geopolitical radar. As he spoke, Russia was clearly putting troops and arms into eastern Ukraine. Why would you do that if you didn’t intend to go further? Ian worried openly about Russia’s extending a land bridge all the way to Crimea and potentially even to Odessa, which is the heart of economic Ukraine, along with the Kiev region. It would basically make Ukraine ungovernable.I thought Putin’s sadly grim and memorable line that “The United States is prepared to fight Russia to the last Ukrainian” pretty much sums up the potential for a US or NATO response. Putin agreed to a cease-fire and assumed that sanctions would start to be lifted. When there was no movement on sanctions, he pretty much went back to square one. He has clearly turned his economic attention towards China.Both Ian Bremmer and Mohamed El Erian will be at my Strategic Investment Conference next year, which will again be in San Diego in the spring, April 28-30. Save the dates in your calendar as you do not want to miss what is setting up to be a very special conference. We will get more details to you soon.It is a very pleasant day here in New York, and I was able to avoid taxis and put in about six miles of pleasant walking. (Sadly, it is supposed to turn cold tomorrow.) I’ve gotten used to getting around in cities and slipping into the flow of things, but there was a time when I felt like the country mouse coming to the city. As I walked past St. Bart’s today I was reminded of an occasion when your humble analyst nearly got himself in serious trouble.There is a very pleasant little outdoor restaurant at St. Bartholomew’s Episcopal Church, across the street from the side entrance of the Waldorf-Astoria. It was a fabulous day in the spring, and I was having lunch with my good friend Barry Ritholtz. The president (George W.) was in town and staying at the Waldorf. His entourage pulled up and Barry pointed and said, “Look, there’s the president.”We were at the edge of the restaurant, so I stood up to see if I could see George. The next thing I know, Barry’s hand is on my shoulder roughly pulling me back into my seat. “Sit down!” he barked. I was rather confused – what faux pas I had committed? Barry pointed to two rather menacing, dark-suited figures who were glaring at me from inside the restaurant.“They were getting ready to shoot you, John! They had their hands inside their coats ready to pull guns. They thought you were going to do something to the president!”This was New York not too long after 9/11. The memory is fresh even today. Now, I think I would know better than to stand up with the president coming out the side door across the street. But back then I was still just a country boy come to the big city.Tomorrow night I will have dinner with Barry and Art Cashin and a few other friends at some restaurant which is supposedly famous for a mob shooting back in the day. Art will have stories, I am sure.It is time to go sing for my supper, and I will try not to keep the guests from enjoying what promises to be a fabulous meal from celebrity chef Cyrille Allannic. After Ian’s speech, I think I will be nothing but sweetness and light, just a harmless economic entertainer. After all, what could possibly go really wrong with the global economy, when you’re being wined and dined at the top of New York? Have a great week.

John Mauldin, Editor
Outside the Box

The Return of the Dollar

LAGUNA BEACH – The US dollar is on the move. In the last four months alone, it has soared by more than 7% compared with a basket of more than a dozen global currencies, and by even more against the euro and the Japanese yen. This dollar rally, the result of genuine economic progress and divergent policy developments, could contribute to the “rebalancing” that has long eluded the world economy. But that outcome is far from guaranteed, especially given the related risks of financial instability.

Two major factors are currently working in the dollar’s favor, particularly compared to the euro and the yen. First, the United States is consistently outperforming Europe and Japan in terms of economic growth and dynamism – and will likely continue to do so – owing not only to its economic flexibility and entrepreneurial energy, but also to its more decisive policy action since the start of the global financial crisis.

Second, after a period of alignment, the monetary policies of these three large and systemically important economies are diverging, taking the world economy from a multi-speed trajectory to a multi-track one. Indeed, whereas the US Federal Reserve terminated its large-scale securities purchases, known as “quantitative easing” (QE), last month, the Bank of Japan and the European Central Bank recently announced the expansion of their monetary-stimulus programs. In fact, ECB President Mario Draghi signaled a willingness to expand his institution’s balance sheet by a massive €1 trillion ($1.25 trillion).

With higher US market interest rates attracting additional capital inflows and pushing the dollar even higher, the currency’s revaluation would appear to be just what the doctor ordered when it comes to catalyzing a long-awaited global rebalancing – one that promotes stronger growth and mitigates deflation risk in Europe and Japan. Specifically, an appreciating dollar improves the price competitiveness of European and Japanese companies in the US and other markets, while moderating some of the structural deflationary pressure in the lagging economies by causing import prices to rise.

Yet the benefits of the dollar’s rally are far from guaranteed, for both economic and financial reasons. While the US economy is more resilient and agile than its developed counterparts, it is not yet robust enough to be able to adjust smoothly to a significant shift in external demand to other countries. There is also the risk that, given the role of the ECB and the Bank of Japan in shaping their currencies’ performance, such a shift could be characterized as a “currency war” in the US Congress, prompting a retaliatory policy response.

Furthermore, sudden large currency moves tend to translate into financial-market instability. To be sure, this risk was more acute when a larger number of emerging-economy currencies were pegged to the US dollar, which meant that a significant shift in the dollar’s value would weaken other countries’ balance-of-payments position and erode their international reserves, thereby undermining their creditworthiness. Today, many of these countries have adopted more flexible exchange-rate regimes, and quite a few retain adequate reserve holdings.

But a new issue risks bringing about a similarly problematic outcome: By repeatedly repressing financial-market volatility over the last few years, central-bank policies have inadvertently encouraged excessive risk-taking, which has pushed many financial-asset prices higher than economic fundamentals warrant. To the extent that continued currency-market volatility spills over into other markets – and it will – the imperative for stronger economic fundamentals to validate asset prices will intensify.

This is not to say that the currency re-alignment that is currently underway is necessarily a problematic development; on the contrary, it has the potential to boost the global economy by supporting the recovery of some of its most challenged components. But the only way to take advantage of the re-alignment’s benefits, without experiencing serious economic disruptions and financial-market volatility, is to introduce complementary growth-enhancing policy adjustments, such as accelerating structural reforms, balancing aggregate demand, and reducing or eliminating debt overhangs.

After all, global growth, at its current level, is inadequate for mere redistribution among countries to work. Overall global GDP needs to increase.

The US dollar’s resurgence, while promising, is only a first step. It is up to governments to ensure that the ongoing currency re-alignment supports a balanced, stable, and sustainable economic recovery. Otherwise, they may find themselves again in the unpleasant business of mitigating financial instability.

The Piketty-Saez data ignore changes in tax law and fail to count noncash compensation and Social Security benefits.

What the hockey-stick portrayal of global temperatures did in bringing a sense of crisis to the issue of global warming is now being replicated in the controversy over income inequality, thanks to a now-famous study by Thomas Piketty and Emmanuel Saez, professors of economics at the Paris School of Economics and the University of California, Berkeley, respectively. Whether the issue is climate change or income inequality, however, problems with the underlying data significantly distort the debate.

The chosen starting point for the most-quoted part of the Piketty-Saez study is 1979. In that year the inflation rate was 13.3%, interest rates were 15.5% and the poverty rate was rising, but economic misery was distributed more equally than in any year since. That misery led to the election of Ronald Reagan, whose economic policies helped usher in 25 years of lower interest rates, lower inflation and high economic growth. But Messrs. Piketty and Saez tell us it was also a period where the rich got richer, the poor got poorer and only a relatively small number of Americans benefited from the economic booms of the Reagan and Clinton years.

If that dark picture doesn’t sound like the country you lived in, that’s because it isn’t. The Piketty-Saez study looked only at pretax cash market income. It did not take into account taxes. It left out noncash compensation such as employer-provided health insurance and pension contributions. It left out Social Security payments, Medicare and Medicaid benefits, and more than 100 other means-tested government programs. Realized capital gains were included, but not the first $500,000 from the sale of one’s home, which is tax-exempt. IRAs and 401(k)s were counted only when the money is taken out in retirement. Finally, the Piketty-Saez data are based on individual tax returns, which ignore, for any given household, the presence of multiple earners.

And now, thanks to a new study in the Southern Economic Journal, we know what the picture looks like when the missing data are filled in. Economists Philip Armour and Richard V. Burkhauser of Cornell University and Jeff Larrimore of Congress’s Joint Committee on Taxation expanded the Piketty-Saez income measure using census data to account for all public and private in-kind benefits, taxes, Social Security payments and household size.

The result is dramatic. The bottom quintile of Americans experienced a 31% increase in income from 1979 to 2007 instead of a 33% decline that is found using a Piketty-Saez market-income measure alone. The income of the second quintile, often referred to as the working class, rose by 32%, not 0.7%. The income of the middle quintile, America’s middle class, increased by 37%, not 2.2%.

By omitting Social Security, Medicare and Medicaid, the Piketty-Saez study renders most older Americans poor when in reality most have above-average incomes. The exclusion of benefits like employer-provided health insurance, retirement benefits (except when actually paid out in retirement) and capital gains on homes misses much of the income and wealth of middle- and upper-middle income families.

Messrs. Piketty and Saez also did not take into consideration the effect that tax policies have on how people report their incomes. This leads to major distortions. The bipartisan tax reform of 1986 lowered the highest personal tax rate to 28% from 50%, but the top corporate-tax rate was reduced only to 34%. There was, therefore, an incentive to restructure businesses from C-Corps to subchapter S corporations, limited-liability corporations, partnerships and proprietorships, where the same income would now be taxed only once at a lower, personal rate. As businesses restructured, what had been corporate income poured into personal income-tax receipts.

So Messrs. Piketty and Saez report a 44% increase in the income earned by the top 1% in 1987 and 1988—though this change reflected how income was taxed, not how income had grown. This change in the structure of American businesses alone accounts for roughly one-third of what they portray as the growth in the income share earned by the top 1% of earners over the entire 1979-2012 period.

An equally extraordinary distortion in the data used to measure inequality (the Gini Coefficient) has been discovered by Cornell’s Mr. Burkhauser. In 1992 the Census Bureau changed the Current Population Survey to collect more in-depth data on high-income individuals. This change in survey technique alone, causing a one-time upward shift in the measured income of high-income individuals, is the source of almost 30% of the total growth of inequality in the U.S. since 1979.

Simple statistical errors in the data account for roughly one third of what is now claimed to be a “frightening” increase in income inequality. But the weakness of the case for redistribution does not end there. America is the freest and most dynamic society in history, and freedom and equality of outcome have never coexisted anywhere at any time. Here the innovator, the first mover, the talented and the persistent win out—producing large income inequality. The prizes are unequal because in our system consumers reward people for the value they add. Some can and do add extraordinary value, others can’t or don’t.

How exactly are we poorer because Bill Gates, Warren Buffett and the Walton family are so rich? Mr. Gates became rich by mainstreaming computer power into our lives and in the process made us better off. Mr. Buffett’s genius improves the efficiency of capital allocation and the whole economy benefits. Wal-Mart stretches our buying power and raises the living standards of millions of Americans, especially low-income earners. Rich people don’t “take” a large share of national income, they “bring” it. The beauty of our system is that everybody benefits from the value they bring.

Yes, income is 24% less equally distributed here than in the average of the other 34 member countries of the OECD. But OECD figures show that U.S. per capita GDP is 42% higher, household wealth is 210% higher and median disposable income is 42% higher. How many Americans would give up 42% of their income to see the rich get less?

Vast new fortunes were earned in the 25-year boom that began under Reagan and continued under Clinton. But the income of middle-class Americans rose significantly. These incomes have fallen during the Obama presidency, and not because the rich have gotten richer. They’ve fallen because bad federal policies have yielded the weakest recovery in the postwar history of America.

Yet even as the recovery continues to disappoint, the president increasingly turns to the politics of envy by demanding that the rich pay their “fair share.” The politics of envy may work here as it has worked so often in Latin America and Europe, but the economics of envy is failing in America as it has failed everywhere else.

Mr. Gramm, a former Republican senator from Texas, is a visiting scholar at the American Enterprise Institute. Mr. Solon was a budget adviser to Senate Republican Leader Mitch McConnell and is a partner of US Policy Metrics.

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.